Exam #3 multiple choice

Monopolies are inefficient because they (i) eliminate barriers to entry. (ii) price their product at a level where marginal revenue exceeds marginal cost. (iii) restrict output below the socially efficient level of production.

(iii) restrict output below the socially efficient level of production

Game theory is necessary to understand which kinds of markets? (i) perfectly competitive (ii) monopolistically competitive (iii) oligopoly (iv) duopoly (v) monopoly

(iii). Oligopoly (V). Monopoly

Sonia opened a yoga studio where she teaches classes and sells yoga clothing. Fixed costs for Sonia's yoga studio include the cost of the (i) tank tops. (ii) wages paid to the other yoga instructors. (iii) lease on the studio space. (iv) insurance that the landlord requires Sonia to carry for the studio.

(iii). lease in the studio space (iv). Insurance that the landlord requires Sonia to carry for the studio

Economists normally assume that the goal of a firm is to (i) sell as much of its product as possible. (ii) set the price of the product as high as possible. (iii) maximize profit.

(iii)Maximize profit

If both players choose their best strategies, player A will earn a payoff of a. 0. b. 2. c. 4. d. 6.

A. 0.

If bubba catches 4,000 pounds per year and he hires Bobby who catches 3,000 pounds per year. The total output of his shrimp business would be a. 7,000 pounds b. 3,500 pounds c. 3,000 pounds d. 1,000 pounds

A. 7,000 because you add bubba and bobby's pounds per year together

The value of a business owner's time is an example of a. an opportunity cost. b. a fixed cost. c. an explicit cost. d. total revenue.

A. Opportunity cost

A monopolistically competitive firm chooses its a. price and quantity just as a monopoly does. b. quantity but faces a horizontal demand curve just as a competitive firm does. c. price but can sell any quantity at the market price just as an oligopoly does. d. price and quantity based on the decisions of the other firms in the industry just as an oligopoly does.

A. Price and quantity just as a monopoly does

If player A chooses his/her best strategy, player B should a. choose left and earn a payoff of 4. b. choose left and earn a payoff of 6. c. choose right and earn a payoff of 2. d. choose right and earn a payoff of 0.

A. choose left and earn a payoff of 4.

The prisoners' dilemma provides insights into the a. difficulty of maintaining cooperation. b. benefits of avoiding cooperation. c. benefits of government ownership of monopoly. d. ease with which oligopoly firms maintain high prices.

A. difficulty of maintaining cooperation.

. Which of the following can be used to help explain wage differences among different groups of workers? a. human capital and compensating differentials b. human capital but not compensating differentials c. compensating differentials but not human capital d. neither human capital nor compensating differentials

A. human capital and compensating differentials

A monopolistically competitive firm is currently producing 20 units of output. At this level of output the firm is charging a price equal to $20, has marginal revenue equal to $12, has marginal cost equal to $12, and has average total cost equal to $18. From this information we can infer that a. the firm is currently maximizing its profit. b. the profits of the firm are negative. c. firms are likely to leave this market in the long run. d. All of the above are correct.

A. the firm is currently maximizing its profit.

Changes in the output of a perfectly competitive firm, without any change in the price of the product a. total revenue. b. marginal revenue. c. average revenue. d. All of the above are correct.

A. total revenue

The Three Amigo's company produced and sold 500 dog beds. The average cost of production per dog bed was $50. Each dog be sold for a price of $65. The Three Amigo's total cost are a. $7,500. b. $25,000. c. $32,500. d. $67,500

B. $25,000 produced and sold then multiply average cost per dog bed

Comparing marginal revenue to marginal cost (i) reveals the contribution of the last unit of production to total profit. (ii) is helpful in making profit-maximizing production decisions. (iii) tells a firm whether its fixed costs are too high.

B. 1. reveals the contribution of the last unit of production to total profit 2. is helpful in making profit-maximizing production decisions

The Wacky Widget company has total fixed cost of 100,000 per year. The firm's average variable cost if $5 for 10,000 widgets. At the level of output, the firm's average total cost equal a. $10 b. $15 c. $100 d. $150

B. 15, 100,000+50,000/10,000

What is the total output of 1 worker? a. 10 b. 30 c. 45 d. 75

B. 30 always top number if more than 1 worker and the marginal product together

The firm should not produce an output level beyond a. 4 units. b. 5 units. c. 6 units. d. 7 units.

B. 5 units

If player B chooses Right, player A should choose a. Up and earn a payoff of 1. b. Middle and earn a payoff of 5. c. Middle and earn a payoff of 7. d. Down and earn a payoff of 4.

B. Middle and earn a payoff of 5.

The deadweight loss associated with a monopoly occurs because the monopolist a. maximizes profits. b. produces an output level less than the socially optimal level. c. produces an output level greater than the socially optimal level. d. equates marginal revenue with marginal cost.

B. Produced an output level less than the socially optimal level

Which of the following statements about this game is true? a. Up is a dominant strategy for A and Right is a dominant strategy for B. b. Up is a dominant strategy for A and Left is a dominant strategy for B. c. Down is a dominant strategy for A and Right is a dominant strategy for B. d. Down is a dominant strategy for A and Left is a dominant strategy for B.

B. Up is a dominant strategy for A and Left is a dominant strategy for B.

If your wage increases from $10 per hour to $15 per hour, then your a. opportunity cost of an hour of leisure decreases by $5 per hour. b. opportunity cost of an hour of leisure increases by $5 per hour. c. out-of-pocket cost of an hour of leisure decreases by $5 per hour. d. out-of-pocket cost of an hour of leisure increases by $5 per hour.

B. opportunity cost of an hour of leisure increases by $5 per hour.

Key Characteristic of a competitive market is that a. government antitrust laws regulate competition. b. producers sell nearly identical products. c. firms minimize total costs. d. firms have price setting power.

B. producers sell nearly identical products

Price discrimination is the business practice of a. bundling related products to increase total sales. b. selling the same good at different prices to different customers. c. pricing above marginal cost. d. hiring marketing experts to increase consumers' brand loyalty.

B. selling the same good at different prices to different customers

When economists refer to a firm's capital, they are describing the a. markets for final goods and services. b. stock of equipment and buildings used in production. c. amount of bank financing used by the firm. d. amount of financing provided by the equity markets.

B. stock of equipment and buildings used in production.

Very often, the reason that players can solve the prisoners' dilemma and reach the most profitable outcome is that a. each player tries to capture a large portion of the market share. b. the players play the game not once but many times. c. the game becomes more competitive. d. self interest results in the Nash equilibrium which is the best outcome for the players.

B. the players play the game not once but many times.

Suppose that Abby and Brad work together to operate as a profit-maximizing monopolist. What price will they charge for water? a. $8 b. $7 c. $6 d. $4

C. $16

Since Kunal and Naj operate as a profit-maximizing monopoly in the market for water, what price will they charge for water? a. $2 b. $4 c. $6 d. $7

C. 6

Which of the following is an example of discrimination in the labor market? a. Women earn less than men because women are more likely to be employed in occupations that pay less, such as elementary school teachers rather than electrical engineers. b. Women earn less than men because women have, on average, fewer years of experience in the labor force because women, on average, periodically leave the labor force to raise children. c. A pharmaceutical sales company pays women less than men because the company's customers, physicians and pharmacists, say that they prefer to deal with men rather than women. d. All of the above are examples of discrimination.

C. A pharmaceutical sales company pays women less than men because the company's customers, physicians and pharmacists, say that they prefer to deal with men rather than women.

The total cost to the firm of producing zero units of output is a. zero in both the short run and the long run. b. its fixed cost in the short run and zero in the long run. c. its fixed cost in both the short run and the long run. d. its variable cost in both the short run and the long run.

C. Its fixed cost in both the short and long run

Firms in industries that have competitors but do not face so much competition that they are price takers are operating in either a(n) a. oligopoly or perfectly competitive market. b. oligopoly or monopoly market. c. oligopoly or monopolistically competitive market. d. monopoly or monopolistically competitive market.

C. Oligopoly or monopolistically competitive market

Which of the following statements are correct? a. The demand curve facing a competitive firm is horizontal, as is the demand curve facing a monopolist. b. The demand curve facing a competitive firm is downward sloping, whereas the demand curve facing a monopolist is horizontal. c. The demand curve facing a competitive firm is horizontal, whereas the demand curve facing a monopolist is downward sloping. d. The demand curve facing a competitive firm is downward sloping, as is the demand curve facing a monopolist.

C. The demand curve facing a competitive firm is horizontal, whereas the demand curve facing a monopolist is downward sloping

Each firm in a monopolistically competitive industry faces a downward-sloping demand curve because a. there are many other sellers in the market. b. there are very few other sellers in the market. c. the firm's product is different from those offered by other firms in the market. d. the firm faces the threat of entry into the market by new firms.

C. The firm's product is different from those offered by other firms in the market

In order for antitrust laws to raise social welfare, the government must a. disallow synergy benefits from accruing to monopolists. b. disallow any mergers from taking place. c. be able to determine which mergers are desirable and which are not. d. always attempt to keep markets in their most competitive form.

C. be able to determine which mergers are desirable and which are not

Which of the following goods is most likely to be associated with monopolistic competition? a. ​Gasoline b. ​Milk c. ​Cookies d. ​Wheat

C. cookies

Pursuing its own best interest, Lopes will a. increase the size of its store and parking lot only if HomeMax also increases the size of its store and parking lot. b. increase the size of its store and parking lot only if HomeMax does not increase the size of its store and parking lot. c. increase the size of its store and parking lot regardless of the decision made by HomeMax. d. not increase the size of its store and parking lot regardless of the decision made by HomeMax.

C. increase the size of its store and parking lot regardless of the decision made by HomeMax.

Pursuing its own best interest, HomeMax will a. increase the size of its store and parking lot only if Lopes also increases the size of its store and parking lot. b. increase the size of its store and parking lot only if Lopes does not increase the size of its store and parking lot. c. increase the size of its store and parking lot regardless of the decision made by Lopes. d. not increase the size of its store and parking lot regardless of the decision made by Lopes.

C. increase the size of its store and parking lot regardless of the decision made by Lopes.

The dominant strategy for Acme is to a. produce a good quality product, and the dominant strategy for Pinnacle is to produce a good quality product. b. produce a good quality product, and the dominant strategy for Pinnacle is to produce a poor quality product. c. produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product. d. produce a poor quality product, and the dominant strategy for Pinnacle is to produce a poor quality product.

C. produce a poor quality product, and the dominant strategy for Pinnacle is to produce a good quality product.

If we observe a great deal of advertising of men's shaving products, we can infer that a. the market for those products is perfectly competitive. b. it costs firms very little to produce those products. c. those products are highly differentiated. d. firms are irrational in their decisions to advertise.

C. those products are highly differentiated

From society's standpoint, cooperation among oligopolists is a. desirable, because it leads to less conflict among firms and a wider variety of products for consumers. b. desirable, because it leads to an outcome closer to the competitive outcome than what would be observed in the absence of cooperation. c. undesirable, because it leads to output levels that are too low and prices that are too high. d. undesirable, because it leads to output levels that are too high and prices that are too high.

C. undesirable, because it leads to output levels that are too low and prices that are too high.

The dominant strategy For Firm A is to produce a. 10 units and the dominant strategy for Firm B is to produce 10 units. b. 10 units and the dominant strategy for Firm B is to produce 12 units. c. 12 units and the dominant strategy for Firm B is to produce 10 units. d. 12 units and the dominant strategy for Firm B is to produce 12 units.

D. 12 units and the dominant strategy for Firm B is to produce 12 units.

The Nash equilibrium for this game is a. 10 units of output for Firm A and 10 units of output for Firm B. b. 10 units of output for Firm A and 12 units of output for Firm B. c. 12 units of output for Firm A and 10 units of output for Firm B. d. 12 units of output for Firm A and 12 units of output for Firm B.

D. 12 units of output for Firm A and 12 units of output for Firm B.

If the market for water were perfectly competitive instead of monopolistic, how many gallons of water would be produced and sold? a. 25 b. 100 c. 200 d. 300

D. 300 (wherever price and Weely revenue are at zero)

Which of the following statements is correct? a. If duopolists successfully collude, then their combined output will be equal to the output that would be observed if the market were a monopoly. b. Although the logic of self-interest decreases a duopoly's price below the monopoly price, it does not push the duopolists to reach the competitive price. c. Although the logic of self-interest increases a duopoly's level of output above the monopoly level, it does not push the duopolists to reach the competitive level. d. All of the above are correct.

D. All of the above are correct

Which of the following statements regarding this game is true? a. Both players have a dominant strategy. b. Player A has a dominant strategy, but player B does not have a dominant strategy. c. Player A does not have a dominant strategy, but player B does have a dominant strategy. d. Neither player has a dominant strategy.

D. Neither player has a dominant strategy.

Which of the following example of a barrier to entry a. Crystal charges a higher price than her competitors for her hair-styling services. b. Dan charges a lower price than his competitors for his dry-walling services. c. Jackie offers free samples of her loose-meat sandwiches to attract new customers. d. Roseanne obtains a copyright for a short story that she wrote and published.

D. Roseanne obtains a copyright for a short story that she wrote and published

The term "compensating differential" refers to a. the fact that workers who do similar work should be paid the same wage. b. the fact that some workers live further from their jobs than do other workers. c. a wage difference that is due to unionization of some firms but not others. d. a wage difference that arises from nonmonetary characteristics of different jobs.

D. a wage difference that arises from nonmonetary characteristics of different jobs.

The fundamental source of monopoly power is a. many buyers and sellers. b. low fixed costs. c. rising average total costs. d. barriers to entry.

D. barriers to entry

Which of the following is an example of labor-market discrimination? You may assume that worker A and worker B have identical characteristics except for the ones listed. A firm offers a higher salary to worker A than worker B because worker A a. has more experience. b. is willing to travel two weeks out of each month, whereas worker B will not travel more than three nights a month. c. has a special certification that directly relates to her job, whereas worker B does not. d. is a young blonde woman, whereas worker B is an older, gray-haired man.

D. is a young blonde woman, whereas worker B is an older, gray-haired man.

Suppose a monopolist is able to charge each customer a price equal to that customer's willingness-to-pay for the product. Then the monopolist is engaging in a. marginal cost pricing. b. arbitrage pricing. c. voodoo economics. d. perfect price discrimination.

D. perfect price discrimination

The Italian government started to patrol the Adriatic Sea and had a policy of returning all refugees to Albania. This policy would contribute to a. an increase in the supply of labor in Italy. b. an increase in the demand labor in Italy. c. a decrease in the demand for labor in Italy. d. preventing an increase in the supply of labor in Italy.

D. preventing an increase in the supply of labor in Italy.

Which of the following statements regarding a competitive market is not correct a. There are many buyers and many sellers in the market. b. Firms can freely enter or exit the market. c. Price equals average revenue. d. Price exceeds marginal revenue.

D. price exceeds marginal revenue

When buyers in a competitive market take the selling price as given, they are said to be a. market entrants. b. monopolists. c. free riders. d. price takers.

D. price takers

To say that a firm is competitive in the labor market is to say that the firm can choose a. both the wage it pays its workers and the number of workers it hires. b. neither the wage it pays its workers nor the number of workers it hires. c. the wage it pays its workers, but it cannot choose how many workers to hire. d. the number of workers it hires, but it cannot choose the wage it pays its workers.

D. the number of workers it hires, but it cannot choose the wage it pays its workers.

Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below:

Question Table

Imagine a small town in which only two residents, Kunal and Naj, own wells that produce safe drinking water. Each week Kunal and Naj work together to decide how many gallons of water to pump, to bring the water to town, and to sell it at whatever price the market will bear. Assume Kunal and Naj can pump as much water as they want without cost so that the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water are shown in the table below.

Question Table

Suppose that a firm in a competitive market faces the following revenues and costs

Question to table

In 1997, Albania experienced a civil war. The civil unrest sent thousands of refugees across the Adriatic Sea to Italy where they sought relief from the fighting.

Scenario

Assume that Amanda understands the true power of her new monopoly. Which of the following statements are correct

She will be able to set the price of high-speed Internet service at whatever level she wants

This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).

Table

If long-run average total cost decreases as the quantity of output increases, the firm is experiencing a. economies of scale. b. diseconomies of scale. c. coordination problems arising from the large size of the firm. d. fixed costs greatly exceeding variable costs.

a. economies of scale.

The job of night watchman at the Punxsutawny Phil Groundhog museum is known to have a high wage. Which of the following would push the night watchman's wage higher? a. The job does not require specialized skills. b. The job is easy. c. The job is incredibly dull. d. The job has minimal risk of injury.

c. The job is incredibly dull.

The production function is the a. increase in the amount of output from an additional unit of labor. b. marginal product of an input times the price of output. c. relationship between the quantity of inputs and output. d. shift in labor demand caused by a change in the price of output.

c. relationship between the quantity of inputs and output.

The Albanian civil war probably affected Italian labor markets by causing a. total employment in Italy to decrease. b. wages in Italy to increase. c. the marginal product of labor in Italy to decrease. d. All of the above are correct.

c. the marginal product of labor in Italy to decrease.

Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below.

question Table

Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies.

question table

This table shows a game played between two firms, Firm A and Firm B. In this game each firm must decide how much output (Q) to produce: 10 units or 12 units. The profit for each firm is given in the table as (Profit for Firm A, Profit for Firm B).

table

This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B).

table